Question

How can reinsurance be used to allow an insurer to accept risks beyond its normal retention?

a.

By stabilizing the insurer's annual aggregate claims experience

b.

By reducing the concentration of risks in any one class of business or geographical area

c.

By minimizing the risk of suffering a greater liability than justified by the financial resources in the event of a catastrophe

d.

By ceding a portion of the risk to the reinsurer and ensuring that it is not placed at a serious disadvantage compared to its competitors

Answer: (d).By ceding a portion of the risk to the reinsurer and ensuring that it is not placed at a serious disadvantage compared to its competitors Explanation:Reinsurance can be used to allow an insurer to accept risks beyond its normal retention and so ensure that it is not placed at a serious disadvantage compared to its competitors by ceding a portion of the risk to the reinsurer.

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Q. How can reinsurance be used to allow an insurer to accept risks beyond its normal retention?

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